The end of the year is an ideal time for tax planning for both individuals and small business owners. The passage of the One Big Beautiful Bill Act (OBBBA) in July introduced more certainty and new opportunities by permanently extending most Tax Cuts and Jobs Act provisions, creating new deductions and eliminating many green energy incentives.
Below are select items that generally apply to individuals, businesses and investors. Because each taxpayer’s situation is unique, you should consult with your advisor to discuss the ideas below and additional opportunities that may apply.
Individuals
- Itemized Deductions – If you expect to itemize in 2025, consider the following before year end:
- Donate cash or property to charitable organizations.
- Upcoming changes may make 2025 an advantageous year for larger charitable contributions. Starting in 2026, a new rule requires a minimum threshold of 0.5% of adjusted gross income before deductions can be claimed. Also in 2026, non-itemizers are eligible for a charitable deduction of up to $1,000 ($2,000 for joint filers).
- Donation of appreciated assets held for more than one year allows a deduction at fair market value and avoids tax on the appreciation of the assets.
- Pay deductible mortgage interest.
- Make state and local tax (SALT) payments up to the annual deduction limit. Under OBBBA, the SALT cap is quadrupled from $10,000 to $40,000 in 2025, subject to phase-out for taxpayers with adjusted gross income of $500,000 or more.
- Donate cash or property to charitable organizations.
- Home Energy Credits – Under OBBBA, both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit expire in 2025. Make energy-saving improvements before the end of the year; it’s now or never.
- Family Tax Breaks:
- Pay tuition in 2025 for a child’s semester beginning in early 2026 if you are able to claim one of the two higher education credits.
- Remember to spend down Flexible Savings Accounts (FSAs) for health or dependent care if you will forfeit unused funds.
- Other Miscellaneous:
- OBBBA introduced four new deductions applicable for years 2025–2028: up to $25,000 of qualified tips, up to $12,500 ($25,000 joint) of overtime premium pay, up to $10,000 of interest on loans for new U.S.-assembled vehicles, and an additional senior deduction of up to $6,000 for those age 65 or older. Each deduction is subject to income phase-outs and specific eligibility rules.
Business Owners
- Depreciation-Based Deductions – The OBBBA enhanced two depreciation-related tax breaks for qualified property placed in service during the year.
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- Section 179 Deduction – Allows a business to currently deduct the cost of qualified property up to $2.5 million in 2025. The Section 179 deduction cannot exceed the net taxable income from all business activities.
- Bonus Depreciation – Previously scheduled to be 40% in 2025, OBBBA permanently restores the 100% deduction retroactive to January 20, 2025, if the property was not subject to a written binding contract before that date.
- Employee Compensation – As noted above, OBBBA created new tax breaks for recipients of certain overtime pay and tip income. Employers must report such income in a separate box on an employee’s 2026 W-2. The IRS encourages employers to reasonably determine and provide this information to employees in a separate accounting for tax year 2025.
- Research & Experimental Expenses – Domestic R&E expenditures are now immediately deductible for tax years beginning after December 31, 2024. Check out more here: Section 174 R&D expensing restored | OBBB tax update
- Other Miscellaneous:
- The 20% Qualified Business Income (QBI) deduction was made permanent with expanded phase-in ranges and minimum deductions.
- Many clean energy incentives are scheduled to terminate in 2025 and 2026. If you planning or have started energy projects, review completion deadlines and material sourcing to ensure you will qualify for tax benefits.
Investors
- Capital Gains and Losses – Review your portfolio and year-to-date gains. Harvest capital losses to offset gains, especially high-taxed short-term gains, keeping in mind the “wash sale rule.”
- Net Investment Income Tax (NIIT) – When making investment decisions, do not forget about the 3.8% NIIT, which applies to the lesser of “net investment income” or the amount by which your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers.
- Required Minimum Distributions (RMDs) – You must begin taking required minimum distributions (RMDs) from qualified retirement plans like 401(k) plans and IRAs after age 73.
- If you are required to take a distribution in 2025, make arrangements to receive the RMD by the end of the year to avoid a 25% penalty.
- Beneficiaries of qualified plans and IRAs must also comply with RMD rules. The SECURE 2.0 Act significantly changed the distribution timing of inherited funds. Consult with your tax or financial advisor if you have questions.
- 401(k) Plan Savings – Step up contributions to feather your 401(k) nest egg. Your plan may allow for additional deferrals before the end of the year. The 2025 “regular” employee contribution limit is $23,500. Those age 50 or older are allowed a “catch-up” contribution of $7,500 for a total of $31,000. Those age 60 through 63 can make a “super catch-up” contribution of $11,250 for a total of $34,750. For 2026, amounts are $24,500 regular, $8,000 catch-up and $11,250 super catch-up.
- Beginning in 2026, employees who are considered highly paid individuals and were employed by the same employer in 2025 can no longer contribute their catch-up amounts on a pre-tax basis. Instead, catch-up contributions must be contributed as Roth deferrals. In 2027, this rule applies to all highly paid individuals.
- Estate Tax – The federal estate and lifetime exclusion—$13.99 million per person in 2025—was scheduled to revert to about $7.2 million in 2026. OBBBA permanently increased the exclusion to $15 million in 2026 with future inflation adjustments. While the federal exclusion remains high, there are 16 states plus the District of Columbia that impose their own estate or inheritance tax, most with exclusions significantly lower than the federal amount. Review your estate plan, recognizing that estate tax is just one of many items to consider.
- Gift Tax – An annual gift tax exclusion for present gifts allows you to give each recipient up to $19,000 in 2025 without dipping into your lifetime exclusion. Married couples can give $38,000 per recipient. The 2026 annual exclusion amount remains at $19,000.
- Other Miscellaneous:
- Consider a qualified charitable distribution (QCD) if you are age 70 ½ or older. In 2025, $108,000 of IRA funds can be transferred directly from your IRA to a qualified charity free of tax.
- Weigh the benefits of a Roth IRA conversion, especially if 2025 will be a low-tax year.